The Rise and Fall of a Video Game Behemoth - Sega

In the summer of 1991, at the Summer Consumer Electronics Show, video-game behemoth Nintendo revealed the follow-up to their much-adored NES console. The Super Nintendo would improve on the original in every way, featuring 16-bit graphics and capacity for some 32,768 colors.

In the summer of 1991, at the Summer Consumer Electronics Show, video-game behemoth Nintendo revealed the follow-up to their much-adored NES console. The Super Nintendo would improve on the original in every way, featuring 16-bit graphics and capacity for some 32,768 colors. And they had Mario. But a little system called the Sega Genesis (Mega Drive in Japan) was determined to play David to Nintendo’s Goliath. With the same processing powers but just 512 colors, the Genesis previewed a game with an obscure blue protagonist no one had ever heard of. And Sonic the Hedgehog killed. To follow up on the buzz, Sega of America president proposed a wild idea—drop the console price to $149 while bundling it with Sonic. Sega Japan was vehement in its opposition, but after a chaotic board meeting that involved chair throwing, the American got his way. The gambit paid off: the Sonic bundle sold 15 million units, Sega was the toast of the town, and the Genesis had entered the cultural zeitgeist.

It was the height of success for the brash and ambitious company. And they would never repeat it again.

Everyone loves an underdog

A bit of history. Sega didn’t begin in the late ‘80s. Far from it—they’d been around since 1940. But why one decade in their 76-year history was a make-or-break one for them was because the ‘90s were the final battleground in the console wars. By the time Y2K arrived there would be those consoles sitting atop Mount Olympus, and those that had fallen into obscurity (the TurboGrafx-16, anyone?). Sega was determined to remain the last system standing.

At least the U.S. arm of the company was. With typical American bluster, new Sega America president Michael Katz, heading a skeleton crew of just 40 employees, made the bold statement in 1990 that Sega was going to capture 50% of the console market (this at a time when Sega enjoyed a paltry 6% share). But Katz clashed with Sega Japan and was eventually replaced by former Mattel President Tom Kalinske, who was on the same page as the Japanese. The company needed an icon, a “Mario slayer.”

Enter a wide-eyed blue hedgehog with bubble-gum-pop spiked hair and an arrogant smirk. Sonic the Hedgehog was the brainchild of Sega artist Naoto Ohshima and programmer Yuji Naka. It was a character built for speed, as evidenced by Sonic’s sleek angles. In hindsight it was a masterstroke, as the Genesis’ hardware allowed for a faster gameplay the likes of which console owners had yet to experience. The end result: a hyperactive blue rodent zipping along an adventure storyline at a pace Nintendo could only dream of. What better way to appeal to the Ritalin generation?

By the end of 1992 Sega boasted 60% of the console share in North America. It was a chest-thumping achievement that silenced all critics and announced to the world that Sega’s Mega Drive/Genesis was a force to be reckoned with. They’d reached the mountaintop. All they had to do was cement their legacy and they’d enjoy first place for the foreseeable future. But, alas, it wasn’t to be.

The harder they fall

The first was Sega’s decision to focus on developing console add-ons, which, historically, don’t help game companies expand market share. First it was the Mega-CD, a disc-playing attachment that promised to immerse gamers in interactive movies. The problem was that the drive was consumer grade, not CD-ROM, which meant it could barely deliver what was asked of it. Many test units even burst into flames because the attachment overheated the drives. One statement from Scot Bayless, who served as senior producer of Sega during the era, gets straight to the crux of the matter: “The Mega-CD never really had a reason to exist.”

You’d think Sega would have learned their lesson after that debacle, but instead they doubled down with the 32X. It was yet another add-on that was supposed to boost the Genesis’ capabilities to 32-bit in order to compete with Atari’s 64-bit Jaguar console. Sega saw its potential as a shot of nitrus oxide to the Genesis engine, but delivering such power was cost prohibitive. They had to scale back the 32X, which resulted in a lack of functionality. Combine that with the fact they released it a year before the Sega Saturn console—effectively diverting resources from what should have been their sole focus—and they simultaneously sunk their next-gen ambitions while delivering a sub-par product.

Throughout the rest of the ‘90s Sega’s strategy was wholly reactive. Instead of following through on an original vision, they threw everything at the wall in the futile hope that something would capture the public’s imagination. They released console after console, add-on after add-on, to the point they had the Mega-Drive, Mega-CD, 32X, Game Gear, Master System, etc.—always hoping beyond hope that one of them would capture the public’s imagination.

At the end of the ‘90s Sega marshaled all their forces one last time in an attempt to learn from their mistakes. The result was the Dreamcast, a solid, powerful system that could compete on hardware terms with the PlayStation, Xbox and GameCube. And although it was successful in North America, the console was expensive to manufacture, and it cost more to launch than it recouped. Ultimately Sega’s unsavory reputation followed the Dreamcast, and the machine died with a whimper.

Rising from ashes

But all was not lost for the company. An infusion of cash—as well as a deathbed investment from ailing investor Isao Okawa—kept Sega solvent and facilitated their transition from hardware manufacturing to software publishing. Today they are responsible for some successful titles, and the company turns a handsome profit. But the days of Sega as a console powerhouse on the global stage are long gone, never to return again. Possibly.